An Inquiry into the Nature and Causes of the Wealth of Nations, usually simply called The Wealth of Nations, by Adam Smith was first published on this date in 1776, while the Agricultural Revolution was in full swing and the Industrial Revolution was cranking up. Smith concerned himself with the question of why some nations had more wealth than others, the division of labor, free markets, the law of supply and demand, competition, profit, and productivity, and the book is considered a founding work of classical economics. It influenced governments and organizations, setting the terms for economic debate and discussion for the next century and a half.
The Wealth of Nations was the product of 17 years of notes and earlier works, as well as conversations among economists of the time concerning economic and societal conditions during the beginning of the Industrial Revolution. Smith sought to offer a practical application for reformed economic theory to replace the mercantilist and physiocratic economic theories that were becoming less relevant in a time of industrial innovation. The book influenced economists, politicians, mathematicians, biologists, and scholars in a wide variety of fields. The Wealth of Nations was as foundational in the field of economics, as Isaac Newton’s Principia Mathematica for physics, Antoine Lavoisier’s Traité Élémentaire de Chimie for chemistry, or Charles Darwin’s On the Origin of Species for biology.
Smith’s main tenet is that some nations are wealthier than other nations, not because some countries work harder or have better resources, but because of the judicious exploitation of free trade. Smith argues that free trade allows countries to import goods that are expensive to produce within their borders and export goods that are cheap to produce. Opening borders is better in the long term because the long-term cost of production is lower. One of the central ideas of Smith’s economics is what he calls “the invisible hand of the market place.” The “invisible hand” in some ways foreshadows the concept of culture in anthropology: that is, there are natural forces at work that regulate communities (and markets) regardless of conscious involvement. People who create products will always work to make the biggest profit. This spells success all around, because when business owners have the long view in mind, they will put out their best work. He gives the example of a butcher. If a butcher sells bad cuts of meat, his customers will not come back. He might make a profit in the short term, but in the long term, it is better to sell a good product for a price people are willing to pay. The invisible hand of the market ensures a prosperous system that works for the good of the majority. Smith acknowledges that some will become super rich, and some will stay poor, but for him, this is a logical price to pay for a thriving economic system. In order for freedom to prevail, and for the majority to pursue their happiness and goals, the system must allow for some measure of inequality.
Smith wrote The Wealth of Nations in response to the prevailing economic theory of the time, mercantilism. Mercantilism stated that international trade results in a collection of winners and losers. For one country to get rich, it is necessary that another country be poor. Because resources are limited a country will have to put in measures to ensure its prosperity at the expense of another. This theory meant that countries tried hard to bring money and resources within their borders, but blocked free exchange so that money stayed inside. Countries would levy tariffs on goods coming from outside countries, sometimes at the expense of their own long-term good. If another country produces something more cheaply than your country can, you can place tariffs on imports, so that the product made inside the country is competitive. The problem is that this action raises prices.
We could argue about the merits of Smith’s advocacy of free trade and laissez-faire economics for a long time. In the nineteenth century in Britain, unregulated capitalism without social safety nets led to catastrophic urban poverty, with political economists such as Karl Marx providing a very different analysis running counter to Smith’s. Smith, himself, also put limits on completely unregulated production. He believed that some taxation was needed to provide for services, such as roads, that benefitted everyone, and he was also strongly opposed to monopolies that circumvented the natural processes of free market competition and artificially forced up prices. Thus, economic systems always needed some regulation. How much regulation and taxation is a continuing debate. Smith’s basic premise that all people are self-interested and striving for the best for themselves and this fact drives markets and individuals to maximize benefits for all concerned, is deeply contested to this day.
Here is a frugal Scots recipe for apples and oats that I make once in a while when I want a quick dessert.
Apples and Oats
1½ oz butter
2 oz brown sugar
4 oz rolled oats
4 cooking apples, peeled, cored, and sliced
1 tbsp lemon juice
Preheat the oven to 300°F.
Melt the butter in a pan and add the oats and sugar. Mix well. Spread out in a shallow tin and toast in the oven until they are golden brown. Keep an eagle eye on them, and shake periodically. They will brown quickly and unevenly if not shaken.
Toss the apples in the lemon juice and put them in a casserole with a tight-fitting lid. Bake in the oven until the apples are soft and fluffy (about 30 minutes). Beat in the sugar to taste and allow to cool.
In a loaf pan, arrange a layer of oats, then apples and repeat until all are used up, with a layer of oats on top. Let rest for at least an hour. Serve with whipped cream.